Tuesday, August 02, 2011

Keynesian "stimulus" has failed to do anything but prop up the Status Quo. If we want to create jobs, we need to clean the house of impaired debt and lower the cost structure of the entire economy.

Politicos across the spectrum and cargo-cult Keynesians are constantly bleating about "creating jobs." You really want to create jobs instead of just helplessly wringing your soft little hands? Here's how:

1. The only engine for jobs is small business, so quit pandering to global corporations and start pandering to the people who might actually hire someone in America. The back-of-the-envelope number bandied about is that small business creates about 60% of the new jobs in the U.S. I suspect that's a number from a decade or two ago; in the real world of the present, it's more like 90%.

As noted here many times before, Global Corporate America is a profit machine with no loyalty to the nation or its workforce. It only has one prime directive: deploy capital and labor wherever it reaps the most profit and the quickest return. That's it. Everything else is political propaganda and PR.

This is not a judgment, it is a statement of fact. As capital is allowed to flow freely, then it seeks the highest return and the lowest labor costs. Once global supply chains are in place, then that place is rarely America.

Why? Because the U.S. economy has a high cost structure for small business that's getting higher while yielding diminishing returns. Rents are high, thanks to the real estate bubble, taxes for small business are high, healthcare costs are double that of our developed-world competitors--the list goes on. America is not an efficient place to do business; you pay high costs and taxes (if you're a small business or self-employed), and don't get much in return.

It's a great place to be a global corporation or billionaire, because they can buy special favors that exempt them from the same burdens imposed on small business.

The U.S. economy is hobbled by two systemic burdens: sickcare and the insolvent "too big to fail" banking system. Both act as enormous taxes on the productive citizenry.

You want to create jobs? Then stop diddling around with cargo-cult Keynesian "stimulus" which just props up the least efficient and most parasitic elements of the economy: the banking sector, Wall Street, cartels and fiefdoms. Keynesian stimulus is simply another facet of the Wall Street/bank/corporatocracy Status Quo: we've already squandered trillions in "stimulus" government spending, and very little has trickled down to the businesses which might actually hire someone in the U.S. It is a failed policy precisely because it is entirely Status Quo.

If we really want to create jobs, we need deep structural reforms. Rearranging the deck chairs on the Titanic--i.e. trimming the payroll tax 2%--is meaningless. Here's the to-do list for those who are serious about creating jobs:

1. Write off $3 trillion in underwater mortgages, $1 trillion in impaired student loan and consumer debt, and $1 trillion in doomed commercial real estate loans. Here's the core fact: those debts will never be paid back; they're already lost. Keeping them in a zombie state cripple the borrowers and the economy. The 10 million mortgages which are deeply underwater are not coming back; they're gone, let's accept it and set the stage for real growth. This writedown will have several salutary consequences:

A. It will wipe out the 6 "too big to fail" banks which are acting as a dead weight on the economy and on its political governance. It's too bad the Keynesians are too busy painting radio dials on rocks and chanting tired incantations to realize that the only step that will make a difference in jobs is destroying the "too big to fail" banks, and thus destroying their grip on the nation's throat.

Replace them with 50 smaller banks which are precluded from buying each other--or 250 banks. Re-enact Glass-Steagal to separate depository and investment banks--recall the bill was less than 10 pages long. Once the TBTF banks are gone, there won't be enough concentrated wealth and capital to so easily subvert the political system.

B. By wiping out doomed home mortgages, you free up workers who were immobilized and unable to move to where jobs are being created. Labor mobility is absolutely critical, so those with the right skills can move to where the skills are needed; underwater mortgages trap potential employees in dead-ends.

C. Wiping out the debt via auctioning off 10 million homes would drop prices and lower the cost structure of housing across the board. The critical destructive event of the past decade was making housing a speculative playground. That jacked up costs and left underwater owners and lenders fighting to keep prices propped up. That is a hopeless exercise, another "hidden tax" on the economy.

Writing off debt that will never be collected cleans the slate and lowers the cost structure. Once housing returns to its historical levels of valuation, a lower salary will still be enough to buy a house.

In other words, propping up housing to "save" the banks has helped render America uncompetitive on the global marketplace. Historically, a house should cost no more than two years of the median salary in the area.

2. Reduce healthcare/sickcare costs by a third, from 17% of the nation's gross domestic product (GDP) to 11%--then reduce it again to the level of Australian and Japan healthcare costs, around 8% of GDP. Sickcare is truly pernicious, as it acts as an 8% "useless tax" on the economy: if our developed-economy competitors can provide healthcare to all their citizens for literally half of what we spend per capita, then we are instantly uncompetitive just as a result of sickcare.

As I have endlessly explained here, "healthcare" in the U.S. is nothing but an enormously profitable assembly of cartels. It is truly sickcare, because in a profit-based system, health is profitless and therefore the enemy of profit: it's illness that's profitable, so the sicker the populace, the better.

That's why 50% of our healthcare costs are expended on 5% of the people. They're where the money is to be made. Diabesity is immensely profitable; low-BMI healthy people are uselessly profitless. Illness is highly profitable, health is unprofitable.

I have covered this many times, and I don't have time to repeat it all. Please enter "sickcare" into the Google custom search bar in the upper left sidebar, and you can find all the source material you want.

If you read the history of healthcare, it seems more an historical accident than some well-thought-out plan that employers were saddled with providing healthcare insurance for their employees. This was workable when healthcare was 1% or less of a workers compensation, but now that it's 50%, and millions of people work part-time or are contract workers, it no longer works on a systemic level. There is nothing written in stone about this system, and in a "freelance nation" it no longer makes sense.

I have often written about healthcare, and what it all boils down to is this: either the system shrinks in a chaotic collapse, or we deal with reality and shrink it via a complete redesign. It's going to implode if the current course is maintained, and then we'll have nothing but shambles. Is that really preferable to grasping the nettle and redesigning the system from the ground up? Isn't America supposed to embrace innovation? Or is that just PR for selling a new electronic toy?

Scrape away the propaganda spewed by cartels and their think-tank toadies, and the bottom line is that there are only two large-scale healthcare systems which are efficient in the U.S.: the Veterans Administration and cash. To understand why this is so, we need to realize the staggeringly negative consequences of not having a nationally mandated "best practices" for care that is also strictly cost-conscious.

Without a coherent, rational, cost-conscious set of national "best practices" guidelines, doctors and their employers are open to claims of wrongful care, inadequate care, etc. This lack of national standards creates wasteful "defensive medicine" on a vast scale. This site has many readers within the medical profession, and I could relate many horror stories of the perverse incentives created by the current sickcare system.

I am not an expert on the VA, but it seems to have a national set of "best practices" which are applied at all VA facilities around the nation. There are limits on care--there has to be. That is simply reality. I knew an older internal medicine doctor in my 20s and 30s, and he often had very ill patients with multiple conditions and diseases. At this stage of illness and life, there is very little anyone can do to restore the health of a very ill person. "Heroic measures" undertaken to stave off lawsuits just throw away money and place additional burdens on the family and the patient.

Why is it so difficult for us to recognize these simple realities? One reason is the system rewards "heroic measures" (highly profitable) and lawsuits (potentially profitable, so "fishing expeditions" are encouraged) if they're not undertaken.

The VA is the only truly innovative healthcare provider in the nation. I don't have time here to explain why, so do your own research on national computer systems in healthcare. The VA is owned lock, stock and barrel by the Federal government, and while it has its problems like any vast bureaucracy, nobody is claiming that it is corrupt. We seem to have forgotten that corruption comes with concentrations of wealth and political power which forms partnerships of cartels and Central State fiefdoms. If there is no profit, then the motivation for corruption falters.

How corrupt is NASA or the VA? Are they really like the banking sector? The answer is no.

Here's the key feature of the VA system: doctors get to be doctors, not gate-keepers or profit-skimmers. Doctors don't own the labs that do the tests they order, and when somebody sues them, the doctors are backed up by a regiment of government lawyers. Doctors don't have to lay awake at night worrying about getting sued or making their malpractice payment.

The common-sense solution to cut healthcare costs in half is a dual system: a VA-like system with universal access but strict cost controls and no profit, and cash: buy whatever care you want, from whomever you want. Don't like the VA system? Fine, save your cash and buy whatever care you want, no restrictions. Don't want to work for the VA system? Fine--get your license to practice medicine and set up shop, cash only.

This would not be a painless transition; after all, the cartel-Medicare/Medicaid complex has been on a hiring spree ever since the cartels realized there was literally no limit to how much they could bill the government. (Recall that 40% of our sickcare costs are paper-shuffling, embezzlement and fraud. That's what's incentivized, so that's what blossoms.)

But the reality is that cutting sickcare in half would restore it from a "profit center" to actual healthcare in the hands of primary-care physicians.

The ultimate answer to improving healthcare is community-based healthcare. As long as isolated "consumers" have few incentives or local options for improving their own health with their peers and primary-care physicians and nurses, then improving health is fighting the headwinds of marketed illness via junk food and techno-entertainment inactivity.

If you don't like these solutions, then come up with your own, but they have to cut U.S. healthcare spending per capita in half. Nothing less will create a competitive economy.

It's easy to predict what will happen is we do nothing; in a few years, Medicare will exist in name, but there won't be anyone left to provide care for IOUs. That's the ultimate irony: when the whole system implodes, the only thing left will be the VA and cash care: the two systems I am recommending as solutions.

3. State and local government "one-stop" permits and oversight for new business.Those outside small business have no understanding of the roadblocks, the junk fees, and the madness-inducing pettiness of competing government bureaucracies, the vast majority of which take no risks and whose employees view small business as the enemy or as tax donkeys upon which they can heap abuse without any fear of retribution. The general mindset of government from the point of view of struggling small business can be summed up in one word: Extortion.

If you think this harsh, please go out and try starting a business from scratch and hire 10 people to work for you. Was the experience enjoyable, low-cost, risk-free and seamless?

The truth is that government workers trying to do a good job of regulation and oversight are just as frustrated as small business: the current system's tangle of self-serving fiefdoms makes it almost impossible for government workers to do their jobs well.

Regulation and oversight are like vitamins: if you don't have any, the economy suffers, but having too much is deadly, too.

I know one growing suburban community that has been trying to get a new train station on an existing rail line for over ten years. The number of agencies and monopolies which can inhibit or block every step of the process is somewhere between 10 and 13. If you think this tangle of competing jurisictions and bureaucratic bloat offers great value to the nation, I invite you to compare efficient nations with low unemployment and bloated banana republics with high unemployment and crony Capitalism.

The latter take 10 years to approve a new commuter train station.--or maybe 15 years, or never. This is the acme of a broken system.

Yes, the issues are complex. But does stretching the decision process out for 10 years add value? Couldn't a decision be reached in two months, if there was any incentive and pressure to do so? Yes or no, proceed or do something else: we have lost the ability to incentivize speed and efficiency in government, and this has crippled the economy being regulated.

If the nation is serious about encouraging new businesses, then government has to strip away the inefficiency and bloat which inhibit growth for essentially zero payoff. Permits are important, and oversight is important; but it is merely common-sense that these functions be centralized and speeded up to foster "best practices" without stultifying new businesses.

Government employees who want to do their jobs efficiently and productively would be delighted to work for a stripped down, centralized agency which was designed to approve or disapprove projects quickly, and regulate the economy like vitamins--enough for safety, but not too much, i.e. a self-serving fiefdom.

It's that simple: lower the cost structure of the economy, and remove the impediments to starting new businesses and hiring workers. For more on these topics:

NOTE OF THANKS: Thank you to everyone who wrote positive, encouraging emails in response to the weekend entry--I have read and savored every one. Due to the press of events and workload, I am unable to respond at this time. To those I owe books to: please be patient, I hope to have worked through my backlog by next week.

Many of you expected a reduced schedule of posts. Rather than post three times a week, I will be going into hiatus for 5 to 10 days at a stretch, then going back to a daily schedule. Times are getting interesting and there is still much to discuss.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:Correspondents' email is strictly confidential. The third-party advertising placed by Adsense, Investing Channel and/or other ad networks may collect information for ad targeting. Links for commercial sites are paid advertisements. Blog links on the site are posted at my discretion.

Our Commission Policy:Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

Weekly Musings Reports

"What makes you a channel worth paying for? It's actually pretty simple - you possess a clarity of thought that most of us can only dream of, and a perspective that allows you to focus on the truth with laser-like precision." Jim S.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Contribute via PayPal

Why I gratefully accept donations and why you might want to donate:

A 95-minute movie with 10 minutes of ads and a small popcorn costs $25.
If you enjoyed this site for at least 2 hours this year, and you donate $25, you already received more entertainment than you did from the movie. The other 100+ hours of enjoyment you receive here is FREE.

Subscribers and donors of $50 or more this year will receive exclusive weekly Musings Reports.

You have the immense moral satisfaction of aiding a poor dumb writer who seeks to inform, entertain and amuse you.

Contribute via Dwolla

Dwolla members can now subscribe to the weekly Musings Reports with a one-time
$50 payment; please email me,
as Dwolla does not provide me with your email: